Transcript of "The economist successful strategy execution"

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SUCCESSFUL STRATEGY EXECUTION

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OTHER ECONOMIST BOOKS
Guide to Analysing Companies
Guide to Business Modelling
Guide to Business Planning
Guide to Economic Indicators
Guide to the European Union
Guide to Financial Markets
Guide to Investment Strategy
Guide to Management Ideas
Guide to Organisation Design
Guide to Project Management
Numbers Guide
Style Guide
Brands and Branding
Business Consulting
Business Miscellany
Business Strategy
China’s Stockmarket
Dealing with Financial Risk
Economics
Emerging Markets
The Future of Technology
Headhunters and How to Use Them
Mapping the Markets
The City
Wall Street
Essential Director
Essential Economics
Essential Investment
Essential Negotiation
Pocket World in Figures

9.
Acknowledgements
N
o book is ever written on one’s own. There are many people I wish
to thank for helping me complete it.
First and foremost there is my dear departed friend Carol Kennedy,
who died of cancer in early 2007 and to whom this book is dedicated.
A constant encourager of my work, she shared many insights from her
extensive knowledge of business and management that informed the
many points of good practice highlighted in the book. She was an inspiration to me and many others.
Second, heartfelt thanks to Damian McKinney, the founder and
managing director of McKinney Rogers, who supported the research and
provided the introduction to many of the organisations that agreed to be
case studies. He was a constant source of encouragement and help – as
were others in the ﬁrm, most notably Alan Edwards, Krissi Collett, Steven
Lee, Ayako Morioka, Fred Tresler, Russ Thornton and Steve Wilson.
Third, thanks to the academic researchers and consultants who kindly
allowed me to reproduce their work in the book. These include Lynda
Gratton and Julian Birkinshaw, professors at London Business School; Kit
(Catherine) Jackson of Palladium, a consultancy founded by the inventors
of the balanced scorecard, Robert Kaplan and David Norton; and Karen
Stephenson, president of Netform, with whom I had great fun putting
together the original material that she volunteered. Thanks, Karen!
Fourth, I am indebted to the senior managers who helped me research
the original case studies that form the basis of the book. In particular,
my thanks go to Peter Aldridge, chief executive of HSBC Rail (UK); Julian
Burzynski, general manager of Judge & Dolph; Sarah Dunn, European vicepresident, human resources, at Thomson Financial (now part of Reuters);
H. Jin Iwamoto, chief executive of MHD (Diageo Möet Hennessy Japan);
Gerald Mahinda, managing director of East African Breweries; Klaus D.
Mittorp, managing director, HR communications and quality, at Deutsche
Bank; John Reid-Dodick, global head of human resources for business
divisions at Reuters; John Rhodes, chief executive of Luxfer Gas Cylinders;
David Roblin, head of clinical R&D at Pﬁzer; Margaret Savage, director
of HR strategic policy at British Telecom; and Bill Simon, vice-president,
heath and wellness products, at Wal-Mart.
On the editorial side, thanks to Stephen Brough, Ron Emler and Penny
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ACKNOWLEDGEMENTS
Williams. Lastly, I would like to thank my partner Suzy for putting up with
long weekends of me being chained to the computer and – good sportswoman that she is – providing essential wing support.
Michel Syrett
September 2007
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11.
1 Setting the scene
Vision is nothing without execution.
Mark Hurd, chief executive, Hewlett-Packard
The problem deﬁned: vision is nothing without execution
Mark Hurd, chief executive of Hewlett-Packard, an information technology
giant, is a strange, almost incongruous, business hero. With his prim-andproper manner and crisply knotted ties, his hair cropped short with every
strand in place and his work-his-way-up-the-ladder career with National
Cash Register before he joined Hewlett-Packard, he hardly conforms to the
devil-may-care image of the modern entrepreneur.
What he has done to revive the fortunes of the legendary Silicon Valley
ﬁrm hardly breaks new conceptual ground either. He has cut costs (and
10% of the workforce), focused the company’s strategy on a few core
areas and separated product divisions. He has also hired senior managers
from outside the famously insular company. These are the sort of routine
measures that rarely generate headlines.
That, according to Hurd, is how it should be. Workaday, stick-to-basics,
get-the-essentials-right management is what he thinks most companies
need. As he told The Economist:1
Vision without execution is nothing. Whenever anyone asks me
about vision, I get very nervous. You’ve got to be able to tie it
back to strategy; you’ve got to tie accountability to things.
“Vision is nothing without execution” is the best summary of this
book. The implication of numerous presentations and business books is
that the design and execution of strategy are a mystery that only business
gurus, highly paid consultants and mba graduates from the best business
schools can unravel.
That is nonsense. Developing good business direction is not magic.
Nor does it require the iq of an Einstein. It is a tough and sometimes
exhausting process that can only really be understood in the context of
what a particular chief executive or senior director was trying to achieve
at the time.
Effective business strategies have an almost mundane quality, usually
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SUCCESSFUL STRATEGY EXECUTION
consisting of ideas that are already known. What really matters is making
sure that these ideas are right for the organisation and, more importantly,
getting the rest of the organisation to agree with you.
Looking back: British Airways
Is this something new? Hardly. It was the case 25 years ago with one of
the most spectacular corporate turnarounds in the 1980s, that of British
Airways (ba). The vision Sir John King (later Lord King of Wartnaby) had
for ba when he was appointed chairman in 1981 – “to be the world’s
favourite airline” – is hardly something that needed the foresight of
Leonardo da Vinci. The method by which King proposed ba should
achieve the goal – putting the customer ﬁrst – is so blindingly self-evident
that an undergraduate from any second-tier business school could have
come up with it.
The trick, from King’s point of view, was persuading the managers and
employees at ba that he meant it. King had one focus for change that he
was able to use to his advantage – the imminent privatisation of ba under
a new Conservative government. This gave him a window of opportunity.
It imposed an external driver that was evident to everyone, and he used
it to impose several important reforms that would have been difﬁcult to
achieve in other circumstances.
Costs were savagely reduced between 1981 and 1983. Heavy ﬁnancial
losses in 1980 gave King the licence to remove 50 of the airline’s 150 senior
managers, sending a loud and clear signal to everyone that things had to
change.
Firing people and cutting budgets are always the easy part. But King
also used ba’s message of strategic intent – put the customer ﬁrst – as the
focus for organisation-wide customer service campaigns, led by project
teams that acted as agents of change.
This was followed in 1985 by a new marketing drive, spearheaded by
initiatives to revamp the corporate image, including a new livery and new
advertising campaigns. The timing of this decision was important. King
waited until the internal revolution was yielding results before he started
to make claims that might otherwise have been shown to be a sham once
customers compared the image they saw in the advertisements with their
actual experiences.
A good illustration of how difﬁcult it is to make good strategy stick is
that the revolution King initiated at ba in the 1980s has not been longlasting and at the time of writing the company’s competitive and public
relations standing was at a new low.
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SETTING THE SCENE
Looking back: General Electric
At the same time, in the United States, Jack Welch, General Electric’s now
legendary chief executive, was turning around the multifaceted business
using similarly simple tenets to those employed by King at British Airways.
He took the view that if a business is not ﬁrst or second in its market, you
close it, sell it or ﬁx it. Emphasise ownership, teamwork and enterprise in
everything you do. Draw on and share good practice wherever you ﬁnd it.
Break down all internal barriers to action and communication. Become a
“boundaryless” organisation, shifting resources and expertise to wherever
they are most needed.
Using this philosophy, over ten years Welch transformed a company
with a declining market share in every sector in which it competed into a
corporate giant ranked number one in the US Forbes 500 throughout the
early 1990s.
Looking at the present: Domaine Chandon
Between them, King and Welch created a template for strategy execution
that became business school gospel and still determines the actions of
chief executives today. There is little difference between the strategy
adopted by Hurd at Hewlett-Packard and that adopted at General Electric
20 years ago. It is based on:
฀
฀
฀
฀
฀
cutting costs and unnecessary spending;
breaking down internal barriers;
focusing all resources on the main strategic goal;
motivating and empowering the workforce to achieve this goal;
boosting performance as a result.
However, in most companies this strategy does not always work. The
problems Frédéric Cumenal faced when he became chief executive of
Domaine Chandon in late 2001 are typical of those confronting a manager
who wants to get things done but cannot.
Based in California, the company is owned by Möet Hennessy, the
drinks arm of lvmh, a luxury food and drinks conglomerate. Like
many champagne companies, Domaine Chandon had enjoyed buoyant
demand in the run-up to the millennium. But demand, which was already
faltering, slumped after the terrorist attacks on New York and Washington
on September 11th 2001.
Cumenal found the company ill-equipped to adapt to the new realities
of the American market. Costs were high, inefﬁciencies abounded,
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morale was low and no one was in a mood to celebrate.
The strategic solution to the transformed market was, Cumenal said,
“conceptual child’s play”. Domaine Chandon had to focus its marketing
away from sales to wine bars and restaurants towards sales through
supermarkets and liquor shops.
Getting the company focused and reorganised around that strategy was
another matter. Cumenal was able to revitalise his senior management
team using the new strategy as an incentive, but old-fashioned objective
setting did not work at other levels.
Domaine Chandon’s sales teams were locked in to marketing to
restaurants and wine bars. The development of an alternative marketing
approach took half a year to create and months more to implement. Lack
of effective delegation meant that too many decisions were passed back
up to the senior management team, often to Cumenal himself. Morale
remained low and performance stagnated.
A solution ﬁnally evolved (see Chapter 3). Meanwhile, Cumenal was
frustrated and blocked in every direction. “We had the strategy right,” he
concluded. “It just didn’t hang together.”
Looking at the present: the case examples in this book
Cumenal’s experiences are mirrored in the stories of other organisations
discussed in this book (see Table 1.1). All have visions that are remarkably
similar and consistent. They are to:
฀ be ﬁrst (or a leader) in their chosen markets;
฀ produce a signiﬁcant return on capital – either through growing
organically or through acquisitions and/or by reducing costs or
making more efﬁcient use of their resources;
฀ be innovative and creative in their product development, service
design and delivery and work practices;
฀ be ethical, socially aware and environmentally responsible in
conducting their business.
Yet the strategies they adopted to bring about these simple visions –
usually a combination of those championed in the 1980s by companies
such as British Airways and General Electric – proved hard to implement
and even harder to sustain.
Why? The best generic term for the collective drag on strategy is a
military one: friction.
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SETTING THE SCENE
Table 1.1 Vision and strategies
Company/
Vision/mission
organisation
Strategy
British
Airways
To be the world’s
favourite airline
Marketing drive to put the customer ﬁrst,
supported by internal training and employee
communications and revamping the corporate
image
General
Electric
To be ﬁrst or second in all If a business is not ﬁrst or second in its market,
chosen markets
close it, sell or ﬁx it. Emphasise ownership,
teamwork and enterprise in everything you do.
Share good practice. Break down all internal
barriers to action and communication. Become a
“boundaryless” organisation, shifting resources
and expertise to wherever they are most needed
Diageo (Asia) To be the fastest and most Emphasis on understanding the competition,
entrepreneurial company supported by internal training programmes and
in Greater Asia by 2010
mission leadership conducted with staff and
suppliers (see Chapter 3)
East African
Breweries
To become East Africa’s
number one brewer by
market and segment by
2010
Emphasis on innovation and unrestrained
thinking, supported by mission leadership (see
Chapter 3) and well-thought-out performance
measures (see Chapter 9)
HSBC Rail
To make more efﬁcient
(UK) (leasing use of expertise and
company)
capital – and strive for
improved returns on
equity – by delivering a
broader range of products
and services
Emphasis on efﬁcient use of funds, customer
relationship management, operational excellence
and learning, supported by cross-disciplinary
goals such as “developing a responsive
organisation that is light on its feet” (see Chapter
6)
Judge &
Dolph
To deliver a step change in business performance
in the United States by becoming a “$1 billion
company” by turnover to “win the war on
visibility” (a goal linked to the company’s need
to distinguish itself from its competitors – see
Chapter 6)
To move from maintaining
the company’s position as
Illinois’s leading drinks
distributor to winning
ﬁrst place in the league of
drinks distributors of the
United States as a whole
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SUCCESSFUL STRATEGY EXECUTION
Company/
Vision/mission
organisation
Strategy
Luxfer Gas
Cylinders
To shift the proﬁt base
from high-volume,
low-margin products to
customer-focused, valueadded products
Developing cross-functional “themes’” covering
customer focus, innovation, learning and growth,
being market-led and operational excellence. At
every strategic review, senior managers appointed
to oversee the inculcation of these themes across
the company’s operations report back on progress
using a series of specialist measures designed for
the task (see Chapter 3)
Diageo Möet
Hennessy
Japan
To become the best
builder of drinks brands
in Asia
Using mission leadership, supported by total
quality management-style coaching, to inculcate
the message “We are brand-builders” throughout
the workforce (see Chapter 4)
Reuters
To take “a great leap
forward” in terms of the
beneﬁts of scale and
business autonomy
A four-year change management programme
called Fast Forward, stressing four “values” –
being “fast” (working with passion, urgency,
discipline and focus); accountable; servicedriven; and team-spirited (see Chapter 4)
– and a follow-up programme called Core Plus
emphasising the need to develop new sources of
revenue (see Chapter 8)
Royal
National
Orthopaedic
Hospital
To launch a programme
of clinical innovation
supporting a £20m
refurbishment of the
main hospital campus
The creation of mutually supporting creative team
roles that link the tasks of specialist medical
consultants and professional hospital trust
managers (see Chapter 9)
Thomson
Financial
(before the
merger with
Reuters)
To dominate its chosen
ﬁeld through effective
differentiation
Developing new products such as the
technological tool Thomson ONE, which enables
its clients to tailor and use more effectively the
vast array of ﬁnancial data, analytical information,
research, calculations and news available on its
database. Supporting these kinds of products
requires operational excellence and a performance
culture among staff at all levels (see Chapter 6)
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2 Friction
No plan survives the ﬁrst two minutes of battle.
Helmuth Von Moltke, the Elder, Chief of the Imperial German General Staff, 1858–88
General Electric: turning slogans into mantras in 1990s Hungary
Jack Welch’s concept of a “boundaryless” organisation was highly
successful when he introduced it to General Electric’s US operations in
the 1980s, but it proved frustratingly difﬁcult to export a decade later.
Local cultures and economic traditions intervened at every level.
A good example is the teething pains ge encountered when it tried
to introduce its business philosophy into its Hungarian subsidiary,
Tungsram, following the collapse of communism between 1989 and 1991.
There were predictable run-ins with the local trade unions about the job
cuts totalling half the workforce that ge wanted to impose. By the early
1990s American and British unions may have been used to proposals to
“downsize” the workforce; to the Hungarian unions, however, it was seen
as a gross betrayal of what they had been promised when ge bought a
controlling share of the company. The leader of Tungsram’s independent
trade union said:
When GE acquired a majority share of the company in 1990 it
was hailed by them and the Hungarian government as a shining
example of how capitalist prosperity could be brought to postcommunist central Europe. But at the time GE assumed full
ownership of the company in 1993, much of the lustre faded in
the wake of the job cuts. Tungsram’s workers consequently felt
betrayed by the American management.
Senior American managers went into the deal promising too much
and failed to manage expectations effectively. The result was sullen and
discordant industrial relations that cast a shadow over the early necessary
reforms the company made to its operational processes. However, the
negative impact of this early misjudgment was short-lived as the company
bounced back later in the decade.
More subtle and deep-rooted were the cultural adjustments the
remaining workers had to make in the wake of Welch’s policies of
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SUCCESSFUL STRATEGY EXECUTION
lean, “boundaryless” cross-disciplinary working. Project manager Tibor
Friucsan, who saw Tungsram’s layers of management cut from 11 to three
in as many months, agreed:1
Our world totally changed. People who were used to a
hierarchical structure where the boss gave the orders had to
adjust in a very short time to the idea that decisions were taken
by teams and not individuals.
Other problems stemmed directly from the ideological legacy of the
communist era. Under a socialist system, everyone just focused on meeting
the production targets that had been set (or ﬁddled results to make it
appear they had). There was no intelligent management discipline aimed
at providing what customers wanted, when they wanted (or needed) it.
The result was that while ge managers regarded “Welch-speak”, such as
the need for managers to “release ﬂoods of ideas” and unlock “a culture of
winning”, as articles of faith, to workers on the factory ﬂoor they seemed
confusingly similar to the propaganda of the old order about working
harder and improving efﬁciency. They were seen as just another way
of increasing responsibility and the individual workload for little extra
reward.
Pﬁzer: dealing with discordancy
The malaise caused by the gulf in perception is understandable given
the different economic and social time warps that General Electric and
Tungsram inhabited in the early 1990s. But it remains enduringly familiar
in 21st century companies.
In the early 2000s, Pﬁzer’s global research and development headquarters at Sandwich in the UK was suffering from what senior line managers
acknowledge was a culture of deep cynicism. Projects worth millions
of dollars a day to the corporation were months late and collaborative
dynamics underpinning the work of the teams was, in the words of David
Roblin, vice-president of Pﬁzer global r&d, “discordant and reactive”.
At the heart of the problem was a disconnection between the goals and
activities of the scientists and technical staff working on the many clinical
research projects at Sandwich, the senior “heads of lines” to whom they
reported and the support functions they turned to for the resources to
conduct their work.
The problem was not one of structure or operational procedure. Pﬁzer
operates a cross-functional structure well suited to running and supporting
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FRICTION
long-term research projects and its success in developing new medicines
is clear. It is also justiﬁably proud of its portfolio of standard operating
procedures, developed over decades to facilitate and support the work of
complex multidisciplinary research work.
The difﬁculty was that, in the eyes of many of the scientists and technicians, the system was too rigid in its application. A common complaint,
for example, was that whenever a new operating procedure was introduced, technical or research staff would be pulled away from their work
to undertake a two-day familiarisation and training course even if the
speciﬁc procedure was not immediately relevant to the project in hand.
Yet when the same staff wanted additional resources to solve immediate
problems on the project – for instance, funds to attend a crucial meeting
in another country – the system sometimes just did not deliver them. As
one person put it:
Consideration of our needs was seen as being driven by supply,
not demand. The larger organisation was seen as thwarting,
not facilitating, our work. In some camps there had developed
a classic “us” and “them” mentality. The perception that the
organisation would not respond to legitimate requests for
support and additional resources to help cut corners or save
valuable time resulted in few people testing the system at all.
Friction: the military provenance
The operational difﬁculties encountered by General Electric a decade ago
and by Pﬁzer more recently have little to do with the concept of business
they champion or the more immediate strategies they have adopted. They
are more to do with the muddle senior managers encounter if they do not
keep a grip on how the strategy is interpreted or executed two or three
rungs further down the organisational ladder – a muddle best described
as “friction”.
Friction is a military term ﬁrst articulated by the breed of 19th-century
staff ofﬁcers that emerged in the wake of the Napoleonic wars. It describes
what goes wrong once an elaborate strategy that requires the co-ordination and collaboration of a large body of different units hits the reality of
operations on the ground.
A strategy – at that time and since – derails for a number of reasons:
฀ The orders from headquarters never arrive: the message gets lost
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SUCCESSFUL STRATEGY EXECUTION
฀
฀
฀
฀
฀
฀
฀
or the messenger is killed. For example, during the American civil
war, the strategy for a confederate invasion of Pennsylvania was
found by enemy soldiers wrapped around three cigars in a hastily
abandoned campsite.
The orders are discovered or decoded by the enemy. For
example, the Battle of Midway and other Allied victories during
the second world war were won because the enemy codes were
deciphered.
The orders are not clear or are misinterpreted. For example, look
at what happened to the Light Brigade at the Battle of Balaclava
when a poorly drafted order for a sensible ﬂanking movement was
mistaken by the local commander as a demand for a futile frontal
charge.
Changing or poorly perceived circumstances on the ground make
the order incapable of being executed. For example, the Somme.
The local commander lacks the resources to carry out the order.
For example, the Somme.
The local commander disagrees with the order and chooses not
to execute it, as Admiral Nelson famously did when he wilfully
disobeyed his superior ofﬁcer’s order to disengage from the
enemy at the Battle of Copenhagen by “turning a blind eye” to the
circumstances that prompted the order.
The troops refuse to obey the order or mutiny, as happened in the
French and Russian armies in 1917.
The strategy is based on a false assumption. For example, the 2003
invasion of Iraq by American and British forces was based on
the premise that the Iraqis would welcome the “liberators” and
not revert to the long-standing but suppressed factional hostility
between the minority Sunnis (of whom Saddam Hussein was the
most famous) and the majority Shias.
Friction: the business version
Most of those military circumstances mirror business realities. Translated
a little freely, these include the following:
฀ The target audience for the strategy is not static. For example, the
staff turnover of a large organisation can be equivalent to the
working population of a small town during a ﬁve-year programme
of change.
฀ The goalposts change. For example, politics (big and small), egos,
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FRICTION
personalities, misunderstood intentions, turf wars, thinking
in departmental terms (sometimes called “silo thinking”) and
changing organisational circumstances all combine to alter
priorities and push the strategy down blind alleys.
฀ Poor operational accountability is rife. Either the goals do not
reﬂect the mission or people are not held accountable for them.
฀ Necessary information is imperfect. It is not available or it is not
clear or it is processed and interpreted differently by different
people.
฀ Middle managers complicate things. The better-educated the
individuals are, the worse the problem can become because of
their ability to rationalise their reactions.
Research paints a more detailed picture of what goes wrong. A 2003
survey by the Economist Intelligence Unit, in collaboration with Marakon
Associates, an international strategy consulting ﬁrm, suggests that on
average companies deliver only 63% of the potential ﬁnancial performance their strategies promise.2
Even worse, the survey found, the causes of this strategy-to-performance gap are all but invisible to senior management. As Michael Marakon,
Marakon’s managing partner, comments:
Leaders pull the wrong levers in their attempts to turn around
performance – pressing for better execution when they actually
need a better strategy, or opting to change direction when they
really should focus the organisation on execution. The result is
wasted energy, lost time and continued underperformance.
In one of the (unnamed) companies surveyed, the leadership team
at a major manufacturer spent months developing a new strategy for its
European business. Over the preceding half-decade six new competitors
had entered the market, each using the latest in low-cost manufacturing
technology and cutting prices to gain market share. The performance of
the European unit – once the crown jewel of the company’s portfolio –
had deteriorated to the point where senior management was seriously
considering selling it.
To turn round the operation, the European unit’s leadership team
had recommended a bold new “solutions strategy” that would capitalise on the company’s existing position to fuel growth in after-sales
servicing and equipment ﬁnancing. The ﬁnancial forecasts were exciting
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SUCCESSFUL STRATEGY EXECUTION
– the strategy promised to restore industry-leading returns and growth.
Impressed, senior management quickly approved the plan, agreeing to
provide the unit with all the resources it needed to make the turnaround
a reality.
The strategy did not deliver its promise. By early 2005 the unit’s
performance was nowhere near what its management team had projected.
Returns, while better than before, remained well below the company’s
cost of capital. The revenues and proﬁts managers had expected from
services and ﬁnancing had not materialised and the business’s costs
remained much higher than those of its main competitors.
At the conclusion of the review of the strategy that resulted, the unit’s
general manager was adamant that the course was correct. She declared:
It’s all about execution. The strategy we’re pursuing is the right
one. We’re just not delivering the numbers. All we need to do is
work harder and smarter.
Her boss, the parent company’s chief executive, was not so sure. He left the
meeting unconvinced that the business would ever deliver the performance its managers had forecast.
Strategy: the make-or-break role of the line
Research undertaken by Joseph Bower and Clark Gilbert, published
in Harvard Business Review in February 2007, goes a stage further in
pinpointing the extent to which a strategy’s execution – as opposed to its
design – determines its success.3
What they found, in one study after another, is that how business really
gets done has little to do with the strategy developed at corporate headquarters. Rather strategy is crafted, step by step, as managers at all levels
of a company – be it a small ﬁrm or a multinational – commit resources
to policies, programmes, people and facilities. Because of this, the authors
argue, senior managers might consider focusing less attention on thinking
through the company’s formal strategy and more on the processes by
which the company allocates resources.
Bower and Gilbert illustrate their conclusions with another tale of
eastern Europe at the time the Berlin Wall came down. It involves Lou
Hughes, who became chairman of the executive board of Opel, General
Motors’ European subsidiary, in April 1989. When the wall came down
seven months later, Volkswagen – Germany’s leading carmaker –
announced a deal with East Germany’s state automotive directorate to
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FRICTION
use that country’s automotive manufacturing capacity and to introduce
an East German car in 1994.
Had a potential response from gm been worked through at headquarters using the conventional strategy decision-making process, it would
have taken a year, especially since little concrete data were available
on the East German market, and East Germany remained a sovereign
country with its own laws and currency and was guarded by 400,000
Soviet soldiers. Instead, Hughes – acting on the tenets of the existing gm
overseas strategy, which was to make cars in large focused factories in
low-wage countries – worked vigorously to secure an immediate place for
Opel in the East German market without waiting for approval from gm’s
corporate planners.
Acting on an introduction from an Opel union member to the management team of one of the directorate’s factories, Hughes negotiated, on
his own authority, the right to build new capacity in East Germany. He
then allowed the local factory leader to publicise the deal, induced West
Germany’s chancellor, Helmut Kohl, to subsidise the new plant, and drew
on talents from other operating divisions of gm to make sure the facility
would be state-of-the-art. gm Europe and corporate headquarters were
kept informed, but local decisions drove a steady series of commitments.
Thus the slower moving processes of corporate headquarters were effectively pre-empted by local management doing what it thought best for the
corporation. Hughes later became gm’s international operations president
– a suitable reward for his initiative at Opel.
From friction to focus
From this we learn that the everyday decisions of managers two or three
layers down create – or destroy – a company’s strategy. However, if every
member of staff is clear about what they have to achieve, they can be left
free to decide how they undertake the task. For everyone to proﬁt from
this freedom, however, they must be given the right focus.
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3 Focus
Business goals are often complex – but they must be simply articulated.
Damian McKinney, founder, McKinney Rogers
Luxfer Gas Cylinders: moving beyond operational excellence
In 2002, John Rhodes, chief executive (now president) of Luxfer Gas
Cylinders (lgc), faced a familiar problem. The company, which makes
specialist cylinders ranging from ﬁreﬁghters’ breathing apparatus to scuba
tanks and medical equipment, was one of a dozen businesses bought in
1996 from Alcan by the Luxfer Group, with the intention of turning them
round and reselling them at a proﬁt.
Rhodes had done a good job in raising the company’s proﬁtability and
generating cash for the owner. He had reduced working capital, cut lead
times and improved operational efﬁciency. Similar reforms in a number
of the other former Alcan subsidiaries had enabled Luxfer to sell them on
at a signiﬁcantly proﬁt.
However, lgc remained in the group and Rhodes thought: “What
next?” As he explains:
We were very production-driven and hadn’t spent enough time
looking outward. Operational excellence can take you only so far.
You do get a bang for your buck – but it’s very inward looking. If
you concentrate inwardly but not outwardly, even with the most
efﬁcient, most tightly run company, the marketplace can overtake
you. History is littered with examples of this.
A further issue Rhodes faced was that as the company had grown
throughout its North American, European and Asian markets, a culture of
regionalism had crept in. Classic business feudalism, particularly among
the European managers, was creating an “us and them” mentality with
the rest of the company. Rhodes concludes:
I felt we needed to redirect where we were going, that we needed
to create a strategic focus that would get everyone reading from
the same page and also enable me to get the right people in place.
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25.
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Focus is what Rhodes set out to provide. He brought together for a week
20 managers to draw up a roadmap that would provide a strategic route
for the business, boosting the proﬁts the company made from innovative,
customer-focused breakthroughs in cylinder-making without damaging
the bread–and-butter revenue it made from its existing “commoditised”
products. It became the bible for the company’s growth. Whenever an
initiative is proposed, Rhodes is renowned for taking out his strategic
roadmap, placing it on the table and asking participants to identify
precisely which strategic objective their proposal supports. He uses the
same tactic whenever a meeting strays from the strategic track.
To counter the embedded culture of regionalism and to further support
the new strategy, Rhodes developed a series of “themes” that would
underpin the operations of lgc’s divisions and cut across traditional
geographical and functional boundaries. These themes covered customer
focus, innovation, learning and growth, being market-led and operational excellence. At every strategic review, senior managers appointed to
oversee the inculcation of these themes across all the company’s operations reported progress using a series of specially designed measures.
Rhodes, a psychologist by background, designed these measures not
just to plot progress but also to generate discussion and engagement. He
says:
At LGC, we take considerable time to craft objective statements
on the map so that they are powerful, relevant and meaningful.
We deﬁne each objective in detail and agree on a set of “do
wells” (what does “doing well” look like?) that describe the
actions, behaviours and results expected from delivering each
objective. This, in turn, generates considerable discussion about
how best to implement the strategy in practical terms. The
process drives strong consensus around the agreed priorities
and expectations and makes the strategy understandable and
personally relevant to those who have to execute it.
The results speak for themselves. Before 2002, 60% of lgc’s proﬁts
came from manufacturing high-volume, low-margin products. By 2005,
more than 60% of the proﬁts came from new products that have often
broken new ground in cylinder manufacture. They include a super-light
breathing apparatus cylinder for ﬁreﬁghters that signiﬁcantly reduces
the weight they have to carry on their backs at a time when lives are at
risk, and an extended-life cylinder, which can remain in service for up to
15

26.
SUCCESSFUL STRATEGY EXECUTION
20 years, in contrast to the standard product, which must be discarded
after 15 years. In a different ﬁeld, lgc has developed and manufactured a
high-duration gas delivery apparatus that is revolutionising home-based
oxygen treatment for patients with breathing and lung disorders.
These products are a direct result of the change in culture brought about
by the systematic application of the new themes. The cross-disciplinary
contacts brought about by the innovation theme were directly responsible for the development of the ﬁreﬁghters’ breathing apparatus. The
breakthrough was the result of a close transatlantic working partnership between lgc’s European marketing department, led by Veronique
McKellican, who proposed the two new products, and the Luxfer US
Composite Cylinder Division, under the leadership of Lonnie Smith (then
engineering manager and since promoted to general manager of Luxfer
Shanghai), who developed a new, stiffer form of carbon to facilitate their
manufacture.
The greater priority placed on creating a dialogue with customers about
their needs brought about the development of the gas delivery system for
oxygen therapy at home. Close links with the British Lung Foundation
and the Association Nationale du Traitement à Domicile des Insufﬁsants
Respiratoires, strong patient groups in the UK and France respectively,
helped the company’s r&d department deﬁne what patients required in
terms of product deﬁnition for long-term oxygen therapy at home.
These links started in 2001 and have since allowed lgc to talk directly
to patients, respiratory nurses and consultants to give them a better understanding of the issues associated with home treatment of respiratory
ailments. This, coupled with good contacts established with the medical
divisions of most global gas companies, formed the basis of a series
of brainstorming sessions in Europe and the United States to specify a
product that would meet both the needs of the patients and the ﬁnancial
requirements of customers, in terms of ﬁnancial returns and product positioning compared with existing technologies.
It was established that some European countries were already well
advanced in terms of prescribing lightweight, small, portable equipment
to allow patients mobility. France, Germany and Italy have an established
system of calculating the payback that caters for the ﬁnancial “burden” of
portable liquid systems, whereas the UK, Belgium and eastern European
countries usually put patients on “restrictive” concentrators or large and
heavy cylinders.
Using this knowledge, lgc developed a lightweight, small, highduration gas delivery system that would both meet the patients’ portability
16

27.
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needs and, equally as important, reduce the investment required as well
as the recurring distribution and servicing costs to its ﬁrst-tier customers.
It produced a high-strength, alloy-lined, carbon-wrapped 300lb cylinder
ﬁtted with a lightweight valve and regulator. The system is “enclosed” in
an ergonomically designed case with the added advantage of an in-built
oxygen-conserving device that offers a long duration, portable alternative
to the (more expensive) liquid systems.
Rhodes argues that the cross-disciplinary collaboration and in-depth
dialogue with customers that underpinned both these product breakthroughs would simply not have occurred in the culture that existed in
the company before 2002. He says:
The focus on differentiating products, providing a value-added
premium and getting to the market quickly was not there. There
was a prevailing mindset that said: “This is my train set. I want
to play with my train set. You play with yours.”
Focusing on “hot spots”
Rhodes has grasped the most important aspect of successful strategy
execution: focus. The right focus gets people engaged. The early involvement of a broad cross-section of lgc’s managers in determining the
strategy generated a regular stream of groundbreaking projects arising
directly from the priority given to innovation and customer focus.
Lynda Gratton, professor of management practice at London Business
School and an expert on human resource strategy, puts it differently. She
says it is about ﬁnding people’s “hot spots”.1
Hot spots
(co-operative mindset
boundary spanning
igniting purpose)
Productive capacity
A hot spot is Gratton’s description of the energy that makes sure bestpractice ideas are incorporated into productivity improvements. Her study
of the retention and performance management strategies of 20 companies
revealed that when a hot spot ﬂares, it is through the “spontaneous
combustion” of three elements:
฀ A co-operative mindset. The energy that makes up a hot spot is
sparked by productive personal relationships between talented
staff. As Gratton puts it, value is created in the space between
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28.
SUCCESSFUL STRATEGY EXECUTION
people. People are excited and willing to co-operate and it is these
co-operative relationships that keep them engaged. However, she
continues:
Where hot spots fail, we found that human capital rapidly
atrophied. People lose interest and the intellectual challenge
is gone. They withdraw emotionally as the passion of the
project wanes and this is as good as losing them physically.
฀ Crossing boundaries. This is the energy that keeps individuals
engaged across a company’s functional and wider boundaries.
These relationships enable innovation to emerge and expertise to
be exploited. However, this level of co-operation will not occur
spontaneously. It needs the spark of an igniting purpose.
฀ An igniting purpose. The ﬂaring of a hot spot is always
accompanied by something that people ﬁnd exciting and with
which they are prepared to engage. This might be in the form of
a question (such as “how can we as a company become a force
for good?”) that awakes curiosity. Or it might take the form of a
task or purpose. For example, the bbc galvanised its workforce by
its coverage of the 2006 World Cup. It extended the planning and
execution of the programming to as wide a range of its workforce
as possible, making the event a cross-disciplinary and collaborative
project that acted as a “hot spot”, helping to unify the broadcaster.
Gratton’s concept is based on the pioneering practice of about 20
companies with which she has worked extensively over the past ﬁve
years.
At Nokia, for example, complex networks based on strong relationships and “acquaintances groups” were critical to the company’s ability
to update its products. Within modular product teams, software developers frequently knew each other well and were able to develop and
share complex tacit knowledge. Senior managers at Nokia went to great
lengths to keep the teams intact even through the company’s frequent
reorganisations.
Similarly, at British Petroleum, “peer” groups and “peer challenge” were
crucial to knowledge sharing. Clusters of up to 13 units from around the
world, grouped together roughly by market, were given the task of developing not only their own capabilities but also those of other business
units within the peer group.
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Domaine Chandon: from focus to clarity
Gratton is quick to point out that hot spots cannot be created by command.
They arise naturally through the choice of participants, when their excitement and curiosity are engaged. She says:
The challenge is that in many companies, we have – often
unwittingly – created places where competition and self-interest
negate skilful co-operation. But the good news is that much of
this can be changed. We can craft the practices and processes of
our companies to favour co-operation rather than competition –
and keep our best talent effectively engaged in the process.
But the very serendipity that Gratton highlights raises a second priority.
A common focus is not the only requirement for the effective execution of
strategy: clarity is equally important. The research undertaken by Joseph
Bower and Clark Gilbert, professors at Harvard Business School (see
Chapter 2), suggests that decision-making in organisations spans many
levels, with activities of key individuals proceeding on parallel, independent tracks.
The notion of a top-down strategic process, Bower and Gilbert argue,
depends upon a central control of all steps that is rarely possible.2 As
described in Chapter 2, at the same time that headquarters staff plan for
and roll out initiatives, local managers are invariably acting in ways that
either undermine or enhance them. For this reason, everyone at all levels
has to be clear about the purpose of the strategy, the role they play in
fulﬁlling it and the role their colleagues and collaborators play.
Breaking strategy into easy deliverable objectives, combined with
intensive team-based coaching, solved the problems faced by Frédéric
Cumenal, chief executive of Domaine Chandon, highlighted in Chapter 1.
Lack of effective delegation meant that too many decisions were passed
back up to the top team, in many cases to Cumenal himself. Morale was
low and performance had stagnated. Cumenal adopted a technique called
“Mission Leadership”, which is based on the command and delegation
protocols adopted by the American and British forces during the Gulf
wars against Iraq. Everyone, from senior to junior managers, is trained to
arrive at an analysis of the task which covers an appraisal of the situation,
the guiding purpose set one or two levels above them, the implied tasks
and the boundaries deﬁning their freedom to act. The military origins of
mission leadership and the concept of effective “command” as it applies
to business management are outlined in the Appendix.
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30.
SUCCESSFUL STRATEGY EXECUTION
The key to a mission analysis is that it identiﬁes at an early stage the
“main effort” of the strategy and stops people lower down from diverting
attention and activity away from it. In Domaine Chandon’s case, the main
effort was to focus people’s attention away from sales to bars and restaurants towards sales to supermarkets and liquor stores.
The tasks of each department were broken down into easy-to-understand
objectives. The senior management team briefed the managers immediately
below them, a process repeated throughout the company until everybody
understood what they were doing and why they were doing it.
Things started to move. The ﬁrst thing Cumenal noticed was an increase
in motivation and conﬁdence, largely because once people understood
what the goal was and how their own task contributed to it, they were
left free to explore how to attain it. The number of e-mails he received
dropped dramatically. In time each department did not need to refer to
the strategy to check whether its own objectives were on track. It came
naturally.
By the end of 2003, the results were “spectacular”. All the numbers that
mattered such as asset utilisation, cash generation and proﬁtability had
risen to historic highs. Cumenal reﬂects:
We had not been using our human assets. A proper focus on
the “mission” released potential. It has been a fantastic way of
getting a real competitive advantage by leaving people free to
explore the “how” once you are sure they properly understand
the “why”.
Lipper: clarity as bedrock
The back-to-basics approach of accurate objective setting, focused resource
allocation and encouraging initiative around a universally understood set
of goals does not depend on size.
Among the enthusiasts is Michael Peace of Lipper, a consultancy that
employs just 420 staff to monitor and provide data and analysis about the
mutual fund industry. When he took over in September 2001, Lipper was
forecast to lose more than £5m on revenues of £24m. Three years later the
company made a £5m proﬁt on revenues of £32m.
Building on Lipper’s new-found ﬁnancial success, Peace also used the
measures and accountability imposed by a mission leadership approach
to integrate the operations of a series of smaller fund intelligence ﬁrms
it acquired. These include Hardwick Stafford Wright and Bopp, and more
recently Capital Access and Fitzrovia. Peace says:
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A clear focus means clear job descriptions and clear ownership
of the role. We have fewer role titles and a framework based on
the tasks associated with a mission. For mission leadership to
be effective it has to be actively transmitted via this framework.
Each member of staff has a single sheet of paper showing the
mission and the key deliverables, which are in a database to
ensure objectivity, measurability and integrity. This clarity
is the bedrock of any performance measurement and, more
importantly, personal reward. Through the rhythm of a mission,
we were able to develop a set of tasks with clear deliverables
with owners and a reward structure based on this transparency.
Pﬁzer: turning around its teams
Mission leadership also helped Pﬁzer to overcome the cynicism it encountered among its r&d teams (see Chapter 2). It was this sense of passive
resignation that David Roblin, then Pﬁzer’s head of clinical r&d, wanted
to overturn using the mission leadership concept. He recognised that
cynics are often frustrated idealists and that if the signiﬁcant resources
and expertise of the organisation could be properly aligned with the
speciﬁc needs of the project teams, and be seen to do so, the change in
attitudes and behaviour could be dramatic.
Two problems in particular were high on Roblin’s list to tackle. The ﬁrst
was the need for clarity. As he explains:
Getting people to sit down and go through the intellectual
articulation of a simple mission is more problematic than it
initially seems. Many people think they have done it when in
fact they haven’t. For example, there is no point in setting tight
deadlines for a research project to have reached a certain point in
the clinical or regulatory process if the purpose of the exercise is
ﬁrst to question whether the market wants it. That is putting the
cart before the horse.
Getting this right requires the line managers to be very
clear from the outset about what the mission is, and to pause
sufﬁciently in the consultation to ensure awareness and
understanding. It then requires clinical research staff on the
projects to make clear the way they drew up statements of what
they needed to do the job.
To achieve this, we decided to review the way we consulted
and communicated. We found, for example, that the large project
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32.
SUCCESSFUL STRATEGY EXECUTION
meetings we were holding every week were good for achieving
alignment between the project’s main mission and the goals of
the organisation but were not a good forum for detailed planning
or for breaking down decisions into sub-missions.
The various components of a large, multidisciplinary clinical
research team – pharmaceutical scientists, regulatory experts,
manufacturing experts – all needed to talk to each other on a
regular basis. Much smaller groups were needed to achieve this.
The second priority Roblin identiﬁed was the need for empowerment – in this case, the empowerment that would emerge when, having
established a clear idea of the main mission, the staff in clinical research
teams felt able to harness the resources of the rest of the organisation and
explore innovative ways to keep the project on track. Roblin wanted to
demonstrate to scientiﬁc and technical staff that the “system” would work
for them if it were creatively challenged:
Often their sense that the system was working against them
was based on untried and untested assumptions. I threw out a
challenge to one team that if they could identify the barriers that
were being placed in their path, I’d personally remove them. On
investigation, they found that most of the procedures or processes
they saw as obstructive were precedents set by previous teams
rather than by management. In the end, the only thing they
wanted that we had to change a policy on was the ability to send
out for sandwiches out of hours.
The concepts of mission leadership, outlined to Pﬁzer’s line managers
and team members, stressed the need for leadership styles based on
clarity and simplicity and the role of communication and visibility, as
well as an increase in individual awareness of the impact of their own
behaviour and how it could be modiﬁed to improve overall effectiveness.
In terms of effective execution, it stressed:
฀ the need for a strategic mission and goals for a team;
฀ group alignment with the intention behind their objectives and a
clear focus for their allocation of time and resources;
฀ commitment to a target end-state for the business at the end of a
12-month period and individual responsibilities for achieving that
with measurable outputs;
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33.
FOCUS
฀ a clear understanding of personal and collective operating space
and their interdependencies.
The results can be seen clearly in the successful completion six
months ahead of schedule of one of Pﬁzer’s most important projects:
the clinical research undertaken into the use of one of its main drugs,
Revatio (more popularly known as Viagra) to help patients suffering
from pulmonary arterial hypertension (pah). Viagra is used to treat
male impotence by controlling more effectively the ﬂow of blood to
the penis. Studies have also shown, however, that it can help control
the width of the blood vessels in the lungs, increasing the distance
people are able to walk, for instance, and decreasing pressure in the
pulmonary artery.
The ability of Pﬁzer’s research team successfully to register Revatio’s
use as a legitimate treatment for pah was important not just because of
the millions of dollars the company earned from having the drug on the
market for this use ahead of time, but also because it had been used to
treat pah informally for a number of years and it was important for the
treatment to be validated by formal clinical research.
The project leader, Colin Ewen, stresses the role mission leadership
played in enabling the company to stress the importance of the research
and its strategic intent in conducting it:
It enabled us to establish the strategic objective clearly in people’s
heads in advance, reach a strategic agreement on objectives and
review progress against the original plan.
But the real beneﬁt, he stresses, mirroring Roblin’s conclusions, was the
freedom it granted team members to follow their own instincts and ideas
in how to achieve their own objectives, so long as this supported the
project’s main mission:
Previously there had been reluctance among staff to explore
this freedom. There was a worry that some gung-ho project
leader would place them in an awkward position that would
have repercussions when their performance was reviewed and
appraised at the end of the year by their heads of line. They
never explored the boundaries because they did not feel they had
been given the licence to.
I gave them that licence. I told them that they could do
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SUCCESSFUL STRATEGY EXECUTION
anything as long as it is not illegal, involves fraud or contravenes
government regulations.
Delegation and discretionary powers: the essence of military
command
Both Roblin and Ewen recognise one of the most important principles of
mission leadership which stems from its original use as an integral part
of American and British military command doctrine: if people have a
precise idea of what they are being asked to achieve, they will feel freer
to explore how they achieve it.
They attended a seminar for commercial managers organised by the
UK’s Ministry of Defence and were struck by the similarities between
commanding a military operation and running a multidisciplinary clinical
research project with complex interdependent goals between specialists
working in their own area of expertise. Roblin says:
Having gone into the seminar with a perception that military
forces always operated at a peak of efﬁciency, I was interested
to discover that the generals and admirals we talked to
had remarkably similar logistical and resource problems
to our own. Like us, they are at their best in a crisis. In an
emergency, when lives are at risk and minds are fully engaged,
everybody pulls together. When the situation eases, things start
to unravel.
We are no different. The goal of good project management at
Pﬁzer is therefore not to let things slip and to keep everybody in
mind of what they signed up for, while at the same time having
the common sense to trust professionals to get on with what they
know best.
The link with military command doctrine was also stressed by Colonel
Ian Sinclair, chief of the military planning service in the un’s Department of Peacekeeping Operations, at a private dinner in New York hosted
by McKinney Rogers, a consultancy specialising in the concept. It was
attended by senior managers from organisations as diverse as jwt, an
advertising agency, hbo, a television production company, Diageo, a
global drinks company, and JP Morgan Chase, an investment bank.
Mission command, as described by Sinclair, has the following elements:
฀ A commander gives his orders in a manner that ensures his
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35.
FOCUS
฀
฀
฀
฀
subordinates understand his intentions, their own missions and
the context of those missions.
Subordinates are told what they are to achieve and the reason it
needs to be achieved.
Subordinates are given the resources they need to carry out their
missions.
The commander uses the minimum control measures (so as not to
limit the freedom of action of subordinates).
Subordinates then decide (within their delegated freedom) how
best to achieve their mission. Put more simply: “Tell me what to
do, not how to do it.”
These basic command principles, Sinclair stressed, were even more
important in the case of operations of the type involved in Afghanistan
and Iraq. The command complexities of multilateral coalitions require
the utmost clarity of intent if the conﬂicting needs of different priorities,
reﬂected in un mandates, are to be reconciled and properly interpreted
by military personnel. A fuller explanation is outlined in the articles in
the Appendix.
From clarity to communication
Sinclair’s focus on clarity as the principal denominator of effective
command is endorsed by Damian McKinney, founder of McKinney
Rogers, a former marine ofﬁcer who has championed the adaptation of
the concept of military command to business.
Business goals, he stresses, are often complex but they must be articulated simply:
Strategies can only be sustained by clarity of purpose and
clarity can only be achieved through changes in behaviour …
The capacity for people to get the wrong end of the stick is
never ending and constantly reinforced by poor management.
Persistent but sensitive vigilance is needed to check false
perceptions and over-interpretation of simple objectives.
The next piece of the strategy execution jigsaw is effective
communication.
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36.
4 Communication
If you want to build an organisation that unshackles the human spirit, you’re
going to need some decidedly unbureaucratic management principles.
Gary Hamel, Leading the Revolution and Competing for the Future1
Diageo Möet Hennessy Japan: words really matter
Diageo, the world’s biggest wines and spirits group, has good reason to
be interested in mission leadership because clarity of intent is even more
important in companies where the effective distribution of their products
is handled by external suppliers.
Diageo’s relationship with distributors is particularly important in
Asia, where the company is engaged in a head-to-head battle with its
global rival, Pernod Ricard, and where its “mission” – to be the fastest
and most entrepreneurial company in Asia by 2010 – is inculcated into
not only every one of its employees in the region but also throughout its
network of suppliers.
Good communication throughout the supply chain lies at the heart
of the strategy, a message not lost on H. Jin Iwamoto, chief executive of
Diageo Möet Hennessy Japan, the conglomerate’s main Asian distributor.
He says:
In Japan, words are really important. Distilling your message
into the right inspirational phrase using precise language is a key
part of the way we motivate people. And the way this message
is reinforced and translated into objectives throughout the
organisation will determine whether your strategy is a success.
When Iwamoto took over the company in 2004, his most urgent task
was to enthuse a badly demotivated workforce. The joint venture with
Diageo was both an asset and a source of tension. mhd people had conﬁdence in a range of big brand products that included the Dom Perignon
and Möet & Chandon champagnes, Baileys liqueur and Hennessy cognac.
But successive drops in performance had destroyed conﬁdence in their
company’s ability to build and exploit the brands in the region. Iwamoto
explains:
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COMMUNICATION
It was not the strategy that was the problem, it was the people.
They had a lack of conﬁdence in the company. There was a
lack of trust in local managers. The company had experienced
declining performance for 14 consecutive years. Older people
had failed to meet their targets for many years – but the
performance bonus linked to these targets was paid anyway
because nobody wanted to demotivate them further.
The most common ﬂaw in strategy execution identiﬁed by the
Economist Intelligence Unit study (see page 11) – that a consistent gap
between targets and results fosters a culture of under-performance – was
the problem Iwamoto had to tackle. mhd employees expected to miss
their targets but this failure incurred no sanctions, so it had become the
norm that performance commitments were not and could not be kept.
In a culture ﬁrmly rooted in haiku poetry and an ethos of total
quality management, Japanese companies put a premium on short, pithy
corporate statements of intent that act as a rallying cry and a focus for the
commitment of their workers. For example, Suntory, a Japanese brewer
and distiller, bases its strategy on the mission that it is a “Growing and
Good Company” which continually strives to create value for its customers
and stakeholders, with “good” meaning “good at what it does” and also
“good for the society in which it operates”. The energy and commitment
of its workers are also channelled using the slogan “Yatte Minahare” or
“Go for it!”.
Iwamoto needed to create slogans for mhd that would focus his
workers’ attention on the speciﬁc challenges the company faced. Unlike
indigenous Japanese competitors such as Suntory, Sapporo and Kirin,
whose prime role was to produce and sell their own brands and which
merely acted as distributors for the products of overseas companies,
mhd was set up speciﬁcally to create new demand for Diageo’s leading
brands.
Iwamoto therefore distilled the purpose of the company into a deﬁning
statement: “Become the Best Brand Builder”. The focus for the workforce –
no more than 300 people – is to build the presence and equity of Diageo’s
brands in Asia. The second priority is to be better at it than anyone else.
Because the role of marketing and distributing foreign brands is secondary
in other Japanese companies, whose prime task is manufacturing and
selling their own, mhd should have succeeded in reaching this goal.
Before Iwamoto’s appointment, it had failed dismally.
The single task of building brands provided Iwamoto with a unifying
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SUCCESSFUL STRATEGY EXECUTION
identify for the company. The goal of being better at the task than anyone
else provided him with a vision for the workforce. The challenge was to
translate that goal into a set of team and individual targets that would
stick.
The approach enabled Iwamoto to break down the overall task –
“Become the Best Brand Builder” – into measurable tasks. With Baileys,
a cream liqueur then little known in Japan, the main effort was to grow
the brand exponentially, summed up in the slogan “Grow Baileys”. In the
case of Hennessy, once the cognac market leader in Asia but now lagging
behind competitors, the task was revitalising the brand. With Diageo’s
scotch brands, where mhd faces intense competition from local brands
such as Suntory, the task was to “Beat the Competition in the Scotch
Category”.
Company-wide goals included “building a ﬁghting-ﬁt organisation”,
“establishing a high-performance culture” and “delivering successful value
creation”. Each task was undertaken by a speciﬁc team which was given
targets directly related to the goal. These targets were reviewed annually
and, as they progressed, quarterly. Overall, Iwamoto set the company the
goal of increasing revenue growth each year by 2%.
Staff morale, and how this translated into behaviour and performance,
was a particular concern for Iwamoto:
The challenge wasn’t that people didn’t understand the mission.
It was that they didn’t have the conﬁdence to believe they were
capable of it after decades of poor performance. So a major
task for me was to ﬁnd ways of enabling them to prove it to
themselves. Let me stress here that it wasn’t whether I believed
they could do it. It was whether they believed it.
To provide his workers with a “proving stone”, Iwamoto set the
company an early benchmark of success, deliberately setting the bar as
high as he dared. A priority for Diageo was to increase the revenue it
derived from premium brands such as Dom Perignon champagne. The
market for ﬁne wines in Japan has grown recently as more and more
families entertain at home. But simply setting a target for higher sales was
not Iwamoto’s sole aim. He proposed increasing the retail price by 14% as
a deliberate marketing challenge to the company:
I set the company the task of proving to the customer that the
value of the brand was worth the increased price. To focus
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people’s attention on the revenue target across the board, I used
the analogy that just as human beings need money to live, so
does a company. To do that it must grow. No company has a
right to live unless it earns more.
When the projected growth target was not met after the ﬁrst year,
Iwamoto sent an important signal to the company by not paying the full
bonus:
We awarded people only 35% of the bonus. It was a huge shock.
We also introduced a new performance management framework
so that decisions about bonuses in the future could be better
justiﬁed and understood.
The new performance framework was underpinned by appraising
how individuals were responding to the new targets. Feedback from
the appraisal after two years suggested that although there was a strong
increase in pride in what the company was achieving and in the energy
and ideas being generated, few people were sufﬁciently committed to
effective teamwork and the focus on customer care.
Iwamoto responded by introducing intensive team coaching to
reinforce the importance he placed on team unity, expressed by the slogan
“One Team, One Vision”. Formal coaching was supported by company
awards. At the ceremony at which these were presented, games designed
to reinforce team spirit added colour and fun.
For example, “Kitchen Stadium”, a popular television programme in
Japan, was reproduced as a team game in which four groups competed
in cooking curry. Each team was allocated a budget based on their “One
Team, One Vision” performance scores and had to purchase ingredients,
cook the curry and co-ordinate a table setting. The leadership team set
up by the company to co-ordinate improvements in team performance
then judged which team produced the best curry in terms of taste and
presentation. A big tent was pitched outside the hotel to hold more than
300 people. A tower was erected in the centre of it from which the host
(an mhd employee) could describe how each team was progressing. Each
comprised up to 70 people who had to work together to produce the best
tasting and best looking curry.
By January 2006 it was clear that Iwamoto’s strategy was paying off.
The company was able to announce that it had exceeded its annual
growth targeted for 2005 by achieving 4.9% growth – more than double
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the projected growth. The increase in conﬁdence among delegates at
mhd’s annual company meeting was visible.
But Iwamoto is not resting on his laurels:
We originally set ourselves a ten-year target to turn around the
company’s fortunes. Now I would like to achieve it in eight or
six years. We originally set ourselves the target of 2% revenue
growth a year. Now I have set the target for month-on-month
growth. We have succeeded in achieving this for ten consecutive
months.
I like to compare it to the Olympics. A successful athlete when
he is a child does not know whether he wants to be a swimmer
or a long-distance runner or any other kind of athlete. He just
knows he wants to win a gold medal. We have reached the
point where at MHD we know what kind of athlete we want to
be and we have developed the skills to compete in our chosen
specialism. For the past three years, we have been competing
in the regional heats. Now we are competing in the national
championships.
Communication or consultation: the new realities
Iwamoto is lucky to live in country where a strong total quality management tradition – with its emphasis on cascade-style corporate transformation – and a tradition of haiku verse (brief, carefully structured lines
that distil a message) make it easy to rally workers around a single clear
mission.
In western companies it is not always so easy. The clarity of intent that
mission leadership is designed to deliver at all levels of the organisation
has been made more difﬁcult to achieve by several newer employment
trends:
฀ more employed people working part-time or from home;
฀ larger organisations cutting the number of people they employ
directly;
฀ more “intermediate” workers being used (that is, staff employed
by external suppliers on behalf of an organisation which has little
or no direct control over their work but whose corporate brand is
directly affected by their commitment to its goals and values).
The full extent of the change has only recently become clear with the
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entry of the latest generation of 18–25 year-olds to the labour market.
A survey of young people by The Economist found that they had the
following characteristics:2
฀ They welcome change. Young adults are by nature well-suited to
the unpredictable workplace of the future. They have less baggage
and can therefore afford to take risks.
฀ They think differently. Where years of education, training and
experience were once necessary to succeed, the emphasis is now
on high energy, fast thinking and quick learning. Being self-taught
is no longer a barrier.
฀ They are independent. Today’s twentysomethings came of
age as the social contract between employers and workers was
dissolving. They have never expected loyalty from a company,
nor have they expected to give it. They deﬁne themselves by their
skills, not the ﬁrm they work for. If they have reached this point,
what about those entering the job market immediately behind
them?
฀ They are entrepreneurial. The survey quotes Margaret Reagan,
a consultant with Towers Perrin, a consultancy that studies
workforce trends, who predicted in 1999 that barely one-third of
young people entering the workforce in the subsequent decade
would take steady jobs with companies.
฀ They want opportunity more than money and security. They
would take a cut in salary or work from home on a reduced
income to build up the enterprise they want and can control
or inﬂuence, rather than take a well-paid job that leaves them
powerless.
Further research by the author in a study of 18–25 year-olds conducted
for a previous book3 suggests that the social networks built up by most
of today’s young adults owe far less to mainstream corporate culture
than those of their parents or elder siblings at the same age. A far higher
proportion of these networks are likely to be made up of peers who are
home-based free agents, who regard old-fashioned brand image-building
with suspicion and whose social (as well as professional) lives do not
revolve around a constant, all-encompassing workplace.
Furthermore, having been exposed to brand marketing from an early
age, the new generation of workers are well aware of any form of sales
proposition, including the kind encompassed by missions, values and
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goals connected directly to an employer’s brand. They are savvy, suspicious and far fussier about what propositions they back.
IBM: test-marketing new values
Just how fussy they are was driven home to ibm in a genuinely two-way
dialogue with thousands of its employees via the corporate intranet
prompted by the incoming chief executive, Sam Palmisano, when he set
about revamping the corporation’s core values. They had to be values that
people really believed in and the workforce had to feel it had a role in
shaping them. Accordingly, Palmisano proposed four concepts as possible
bases for the new values, but merely as a starting point for discussion:
฀
฀
฀
฀
Respect
Customer
Excellence
Innovation
These were “test-marketed” through surveys and focus groups involving
more than 1,000 ibm employees. The notion of respect was thrown out
because of its associations with past ibm culture. It was also decided that
statements rather than single words would be more compelling. Out of
this process came the three proposed values discussed during the July
2003 forum:
฀ Commitment to the customer
฀ Excellence through innovation
฀ Integrity that earns trust
Using a specially tailored tool – based on ibm’s e-classiﬁed software but
“turbocharged” to process constantly changing content – analysts distilled
the millions of words that were posted into a series of coherent themes.
The results indicate just how complex negotiating common values can
be when a well-educated and modern-minded workforce takes them
seriously.
Many people, for example, said that a departmental mentality pitted
the business units against one another to the detriment of the organisation
as a whole. Several characterised this as a trust issue, but the proposed
value “integrity that earns trust” was criticised as being too vague. Some
thought it was just another way of saying “respect for the individual”,
one of the original basic beliefs that many now view as outdated. The
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notion of trust was also seen as being too inwardly focused – management trusting its employees – and not prescriptive enough in terms of
how employees should behave with each other or stakeholders outside
the company.
Drawing on this analysis, as well as feedback from surveys conducted
before and after the July exercise and a full reading of the raw transcripts,
a small team (with input from Palmisano) arrived at a revised set of
corporate values:
฀ Dedication to every client’s success
฀ Innovation that matters – for our company and the world
฀ Trust and personal responsibility in all relationships
This was posted on the company intranet the following November.
Palmisano’s assessment of the exercise provides a good starting point
for any business change strategist:4
You could employ all kinds of traditional, top-down
management processes, but they wouldn’t work at IBM –
or, I would argue, at an increasing number of 21st century
companies. You just can’t impose command-and-control
mechanisms on a large, highly professional workforce. I’m not
talking about scientists, engineers and consultants. More than
200,000 of our employees have college degrees. The chief
executive can’t say to them: “Get in line and follow me” or
“I’ve decided what your values are.” They’re too smart for that.
And, you know, smarter people tend to be, well, a little more
challenging – you might even say cynical.
Networks not hierarchies: the new social imperative
In this respect, networks have become as important to communication
and consultation exercises connected to successful strategy execution as
hierarchies. One of the important byproducts of the study and tracking
of mergers and acquisitions, for example, has been the realisation of how
important informal networks are in the daily lives of companies rather
than the hierarchies through which formal communications are normally
channelled.
Invited by the ibm Advanced Business Institute (abi), Karen Stephenson,
a corporate anthropologist, continued her research on the three principal
ﬁgures in these networks who are those best able to communicate and tap
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the response to major strategy initiatives. These are the people who shape
the conversation in the corridors, those who play a critical role in succession planning and those who decide who stays or goes during mergers or
downsizing exercises.
Particularly important are the “hubs”, who communicate with the
most people, the “gatekeepers”, who link the various parts of the business
through a small number of critical relationships (the “right” people), and
the “pulse-takers”, whose cross-functional responsibilities cut across hierarchical divisions and whose web of relationships allows them to know
what everyone in the organisation is thinking or feeling.
Gaining the support of such people, Stephenson argues, is crucial if
any change or initiative is to succeed. A forward-thinking chief executive,
for example, might want to test the ground before introducing or even
piloting an innovative way of working. He or she would use the hubs
and gatekeepers to spread news about the impending change on a semiformal basis and then, a few days or weeks later, garner the “word on the
street” from the pulse-takers. As Stephenson concludes:5
A good metaphor would be to see the organisation as a high
security room laced with laser beams and electronic eyes. An
innocent gambol across the room will set off a series of alarms.
If you are unaware of pre-existing alliances connecting people,
you too can unwittingly set off cultural alarms. Therefore,
harnessing the power of networks is the key to efﬁciently putting
in place strategies that require the unreserved commitment and
motivation of highly knowledgeable and engaged workers.
Stephenson is informal networking personiﬁed. A highly independent
academic with a background in quantum chemistry and a track record
of research into ancient human trading networks (who, as one leading
management writer put it recently, “ploughs her own furrow”6), she has
held professorships and lectured at ucla, Harvard’s Graduate School of
Design, Massachusetts Institute of Technology’s Sloan School of Management, Imperial College London and currently Rotterdam School of
Management. The ofﬁces of her web consultancy, NetForm, are above a
rambling second-hand bookstore in Greenwich Village in Manhattan.
Stephenson bases her approach on a specialised methodology,
supported by dedicated software for analysing human networks, for
which she owns the patents. She works within corporations by brieﬂy
interviewing or issuing short, conﬁdential questionnaires to at least 80%
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of the employees. Questions will include who they work with, from
whom they seek advice on career issues, with whom they collaborate
creatively and who they “hang about with”.
With the data fed into the software, she is able to chart the different
networks operating immediately below formal hierarchies that do not,
in her view, reﬂect the realities of the latitude and attitude of modern
working life.
At Hewlett-Packard, a company she considers to be totally networked,
she used a form of social network analysis to help the company recover
its networks from endless reorganisations in the run-up to its merger with
Compaq (see Chapter 9). At Merrill Lynch, her methods were deployed
to ﬁnd out why some of its human resource managers were more
globally effective than others. At JP Morgan, she developed a pre-merger
due diligence to be used in merger and acquisition valuations. And at
Steelcase, a large American ofﬁce equipment manufacturer, her software
was modiﬁed for designing ofﬁce space for clients based on creating and
sustaining “good communication ﬂows”.
Her methods are frequently used in the run-up to and immediate
aftermath of mergers and acquisitions, where skilful use of gatekeepers
and pulse-takers can predict likely areas of conﬂict or help identify and
reassure the best talent. Her use of social network analysis reached a new
height of application in the aftermath of the terrorist attacks in the United
States on September 11th 2001. Both the American and British governments drew on, and learned from, her knowledge of hidden networks
and how, she argues, they can undermine conventional security measures
and traditional military responses.
Stephenson stresses that a thoughtful and deliberate social network
analysis is crucial to any successful execution of strategy. As she
explains:
When organisations are cruising along, their networks are
normally in a “resting pulse” – involving routine daily contacts,
transactions and functional discussions. But when a major
strategic initiative occurs, a number of other networks come
into place that senior executives need to access in order to get
their message across and keep in touch with how people in the
organisation respond. There are many networks in a culture
which together form a hierarchy of trust, but among the many
there are a few that are most critical to mergers.
The ﬁrst is the social network – the people both inside and
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outside work with whom others discuss what is going on. The
second is the innovation network – people who feel they trust
one another well enough to sound out new ideas on each other
and perhaps challenge the status quo or accepted ways of doing
things.
Next is the expert network – people who have a stored
knowledge of the organisation, its legacies and to whom others
turn for expertise. Then there is the career guidance network
– mentors or the people to consult about one’s future. Finally,
there is the learning network – people who make improvements
by bridging the gap between old (expert knowledge) and new
(innovation).
All of these networks come into play during a major strategic
initiative. Senior executives will want to use the social network
to take the pulse of how people on the ground are responding
to change. Strategic initiatives disturb the resting pulse of an
organisation’s culture and will inevitably produce a shift,
signalling people to challenge the accepted ways of doing things.
At this time, the innovation network will come into play.
During any time of change, people will be nervous about the
impact of the change on their careers – and senior executives
will want to use gatekeepers, who are nearly always part
of the career guidance network, to send out the appropriate
signals to the people they want to retain, advance or develop.
Finally, strategic change nearly always involves some upheaval
of traditional ways of working, so the expert network will be
activated, sometimes resisting change as it has a vested stake in
keeping things the way they are. Resolution is achieved when
there is alignment between the innovation and expert networks,
usually brought about by the individuals who comprise the
learning network. Here the learners respect the legacy of
traditional knowledge as well as understanding how innovation
must be incorporated to ensure that the business can move
forward.
Since September 11th 2001 there has been an increase in the use of
social network analysis, so Stephenson offers this warning: anyone can
connect the dots using software to produce a network map and anyone
can run simple statistical analyses to produce simple answers to simple
mathematical tests. What is important, she argues, is to understand how
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these networks merge and diverge given the organisation’s maturity,
the health of its culture and its capacity to absorb small or sweeping
changes.
Reuters: fast forwarding corporate transformation
Reuters did not draw on Stephenson’s expertise when designing and
executing its “Fast Forward” change strategy – but it might well have
done. The communications and consultation exercise envisaged by John
Reid-Dodick, global head of human resources for business divisions, to
support the programme was designed to tap into, engage and re-motivate
social, innovation, expert, career guidance and learning networks that
were made up of well-educated, sophisticated but highly cynical media
professionals.
Fast Forward: the context
In 2001 Reuters was in the middle of a conventional top-down change
management programme designed by Tom Glocer, the new chief executive,
to alter the company from one structured around geographical markets to
one centred on a global series of products. Unfortunately, it was derailed
by a sudden and unanticipated collapse in Reuters’ markets brought about
in part by the dotcom crisis and a consequent reappraisal of the number
and type of database services used by Reuters’ clients.
Before the crisis there was enough elasticity in the market for clients to
use competing service providers side-by-side, Reid-Dodick explains. The
crisis forced clients to make “zero-sum-game” choices:
The main impact it had was on our competitive relationship
with our main rival, Bloomberg. Clients were forced to choose
between us – and while we retained some contracts, far more
than we would have liked went to Bloomberg.
The resulting fallout led to one of the grimmest periods of retrenchment in the company’s 154-year history. By February 2003, it had reported
a net loss of £394m for the year ending in December 2002 – its biggest ever
– and announced the cutting of 3,000 jobs. In the following three years
– the period during which the Fast Forward programme was conceived,
designed and launched – a further 3,000 jobs were lost.
Glocer’s response was to commission an upgraded and expanded
version of the organisational change programme which aimed to:
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4.1
2.1
The Reuters Fast Forward programme
Things are
changing
Getting
simpler
Knowing your
customers
Working
smarter
Delivering on
June 11th 2003
Implementing corporate
performance
management
Knowing Reuters
programme
Canary Wharf relocation
Building change
capability
Simplifying the
organisation
Delivering internal
customer service
Collaboration as a
corporate capability
Laying the
communications
Clarifying individual roles
and responsibilities
Source: Reuters
฀ make Reuters’ information indispensable;
฀ move the business to a single-product distribution business
structure;
฀ simplify the product line and reshape the cost base;
฀ focus business solutions on the products;
฀ invigorate the culture and behaviour of Reuters’ people.
The transformation programme that resulted, called Fast Forward,
is shown in Figure 4.1. It is designed to support the restructure of the
company into four global customer segments and integrate the organisation’s development, infrastructure, content, sales, marketing and other
activities into aligned global “centres of excellence” or business services.
One important focus is the creation of a new culture, based on being fast,
accountable, service-driven and team-focused, or fast.
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The rationale for the programme was outlined by Glocer in an internal
report in early 2004:7
Many organisational change programmes fail because they
address only structural issues and do not focus enough attention
on engaging their people in the process. Reuters recognised
this in itself. One of the six workstreams of the transformation
programme was focused on reinvigorating Reuters’ culture and
introducing a new way of working. This workstream was given
a name and brand of its own: Living FAST – FAST stands for
Fast, Accountable, Service-Driven and Team – encapsulating the
values that would drive a Living FAST way of working.
Reuters was in survival mode. To ﬁght back, we had to take
a cynical workforce with low morale and turn it into a force
that was driven, looking to the future rather than the past. We
needed to break down functional silos, engender a strong service
ethic and focus people on building a successful company that
would protect the jobs of 13,000, rather than focusing on job
losses. The three-year clock had started ticking. We needed to do
something quickly that would get across the sense of urgency,
get everyone on the same page and involve ALL employees in
driving change.
The crucial difference in the Fast Forward programme was the change
in behaviour it was intended to inculcate in the workforce. The main
emphasis of the organisational change programme had been structural.
Although this priority was rolled into the Fast Forward programme,
the new thrust was to engender the ability to anticipate and respond
to continuous change, not just among the senior management team but
throughout the whole workforce.
Fast Forward: design and execution priorities
The Fast Forward programme has been central to the company’s revival.
It was predicated on four design strengths.
Design strength 1: a comprehensive staff consultation strategy
The priorities in each stage of the programme were determined by an
online consultation exercise that identiﬁed 1,700 issues based on staff
perceptions of the company’s products, business practices, management
style and structure. This was distilled into an agenda for a “Living fast”
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day held on June 11th 2003, in which staff quizzed senior managers on
the same issues face to face.
The feedback from these exercises was submitted to a cross-functional
group of 30 managers responsible for drawing up a set of design priorities for the Fast Forward development team. A two-day meeting of the
group, held in July 2003, was attended by Glocer and the speciﬁcations
for the programme were reﬁned using a combination of (at the time) lively
plenary discussions with Glocer and syndicate work groups on practical
design and implementation issues.
No consultation exercise of this kind – aimed at a cynical workforce
with low morale – had been attempted on such a scale and at such a pace.
Speedy execution was essential, as Reid-Dodick explains:
The team’s task was to bring it to reality, building a realistic plan
that could be delivered within six weeks in all ofﬁces and outline
the budget requirements also. It had to be delivered before the
end of June for two reasons: we wanted to start and maintain
momentum quickly, and secondly, from the middle of June
the company would enter the closed period on the run into its
interim results in July and we wanted to be as open as possible
in our communications on the day. We also asked the team to
challenge us if they did not feel this was the right approach. In
two days after working through a range of issues, scenarios and
ideas, they produced the proposal, plan and budget. We were
conﬁdent that we had an excellent plan produced by employees
for our employees, but it was very ambitious. The central idea
was to mobilise the Reuters world in one day, June 11th, where
activities would begin when the sun came up in the East and end
on the West Coast of America – following the sun.
The objectives were to:
฀ build understanding of the overall transformation programme and
win commitment;
฀ kick-start Living fast by building understanding of the fast values
and explaining what Living fast means for the company and
individuals and why it is central to achieving the transformation
aims;
฀ involve employees in driving change, identifying barriers to
progress, as well as generating potential solutions.
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The project had a central team that provided strategic direction, communications advice and materials, managed the budget and was accountable for the delivery of the plan. It was supported by regional and local
implementation teams that consisted of an army of volunteers who were
excited about the concept and committed to delivering it, even though this
would mean a lot of extra work.
The regional leaders were part of the central core team and were a
crucial communications link with the local implementation teams. A
special website was also created for the project team providing a one-stop
shop for materials, messages, toolkits and support. The plan that was
devised for June 11th set out to achieve a good balance between interactivity and show-and-tell and involved:
1 A welcome session presented by a senior local host lasting around
40 minutes. This was to give an overview of the transformation programme and would contain videos of the workstream leaders and the
chief executive.
2 Two cross-functional interactive sessions – one on what Living fast
really meant, in which employees could say what they felt needed to
be done to live fast, and one to address speciﬁc issues or challenges
set by the chief executive. Each session would last an hour, though
there was ﬂexibility about the amount of time that people could spend
on the second session.
3 A 20-hour Reuters television broadcast on June 11th, streamed to
employees’ desktops. Essentially this was the glue that joined the Reuters world together. It would be supported by a website to carry stories
and photos of activities around the world.
Employees were expected to spend around four hours participating in
the three core elements, but they were free to spend longer if they wished.
The designers also encouraged the organising teams to arrange extra fun
activities.
To help shape the content for June 11th and to get a real feel for the
barriers to progress, Reuters ran a worldwide issues audit in May. An
online database on the Living fast website gave everyone in the company
the opportunity to register their issues – with the caveat that they had to
suggest a solution. The audit ran for two weeks and drew more than
3,000 individual responses.
Employees were asked to register comments in nine topic areas ranging
from products and organisational issues to marketing and customer
41